Canadian Energy Dollars

For the past several weeks the discount of the Canadian dollar to the US dollar has narrowed, practically on a daily basis. Economic recovery is in the air, and with that recovery, better demand for commodities. Seasonally it is the time that gasoline and crude trade at better levels as demand increases prior to the summer travel period. So goes the drill. By the 4th of July this play is over and it is time to start buying heating oil and sell gasoline, and maybe short crude.

Canada benefits greatly from the United State’s failure to explore, drill and use domestic energy. Canada is the largest supplier of US crude imports and ships us about 2.5 million barrels of oil per day Further, about 91% of US imports of natural gas come from Canada.

Much of Canada’s oil is now coming from the gradual development of Alberta’s oil sands. The huge deposits of very heavy crude is called bitumen. Development of this acreage is capital intensive, ongoing and gradually expanding. China, South Korea and companies from all over the world are participating in this venture. Current production is 2.5 to 3 million barrels per day, and the reserves are estimated at 1.7 trillion barrels, more than the total of all known global crude reserves.

Contrast the enlightened Canadian energy policy which strengthens their economy and currency, to the US approach. In Colorado, Utah and Wyoming alone, mostly on Federal owned land, there is an estimated 800 billion barrels of recoverable oil from shale. Technology to convert oil shale-a rock like fossil fuel known as kerogen- to a desirable light crude oil was developed by Royal Dutch Shell (RDS.A) at considerable expense.

Rather than rewarding Shell and moving forward, providing work and domestic energy supplies, massive tax receipts and royalties, while cutting our imports and helping the US Dollar, progress was stopped last summer by US Senator Ken Salazar (D-Colorado) and his fellow Democrats. After halting the oil shale project, Shell’s single biggest R and D development, Senate Democrats proceeded to blast Big Oil for not reinvesting their profits into new energy supplies.

It is estimated that one acre of shale can produce 100,000 to 1 million barrels of oil. Yes, according to the Dept. of Energy three barrels of water are required to produce 1 barrel of oil but contrast this with ethanol. Corn needs about 1000 barrels of water to produce a barrel of oil, and an acre of corn produces only 5 to 7 barrels of oil.

Well that was last year when commodities were booming, and every chic hedge fund manager had to have some oil or commodity index funds to go with an inventory of sub prime loans or some other exotic derivatives. Crude is now only $56/barrel and, with the slow economy, three digit oil is out of the question, right?

Before getting too complacent consider the following:

1. Pakistan, a nuclear power, is on the verge of a civil war.
2. Iran still says they are going to blow up Israel, and is diligently working to perfect their nuclear weapons.
3. President Obama, says Israel must agree to give up some territory for a Palestinian state, as a precondition to helping... with the Iranian issue.
4. The US President suggests it is best that Israel gives up their nuclear weapons as part of his universal disarmament plan.
5. Finally Senator Salazar who so successfully blocked new supplies of US oil is now the Sec.of Energy.

Some of these issues will need to be successfully negotiated or there is going to be a real mess, and the Mid-East supply of oil might be disrupted.

I really doubt that our Sec. of Energy in conjunction with Henry Waxman (D-California) and Edward Markey (D-Mass.) and their cap and trade plan will do anything but obstruct the development of domestic energy supplies. Sure there might be wind and solar power in the future, but where will the energy come from to power cars, trucks, tractors, buses, boats and airplanes.

Maybe the past weeks move in the CAD is merely the precursor of a longer term move back to a premium above USD.

Comments

[prairiedog555:]

I lived in NW Nevada. There are mountains of those greasy oil shale rocks everywhere. There have also been sighs that indicate they are owned by various oil companies since the early 1970's.
I guess they are waiting for something.

May 08 08:16 AM

[peabody:]

Good article, but the facts that the author is quoting on water usage are very misleading, if not disingenuous. It currently takes about 2.5 gallons of water to refine gasoline, but that doesn't represent the massive amount of water that it takes to extract oil from Canadian tar sands. Meanwhile, it takes 3 gallons of water to produce a gallon of ethanol, unless you count the God-given rainfall that causes corn to grow. Some use water numbers that assume corn farmers irrigate their land, yet only 4% of the US corn crop is irrigated. Ultimately, the simple truth is that water usage for ethanol and gasoline production is very similar.

May 08 08:55 AM

[john s. gordon:]

technologies to make crude oil from colorado shale have been available since 1927 but never went commercial because east texas came in big time in that year.
kerogen - to - oil produces copious quantities of spent rock. in the typical retorting process, volume of spent rock exceeds the input because the rock expands when retorted. revegetation of the mutilated real estate requires copious amounts of water and fertilizer, and the colorado river water is locked up by prior users, i/e., if you want access to the water you have to buy out the owners.
oil companies' ownership of the resource in place does not mean they have any plans to do anything with it.
> jack

May 08 09:34 AM

[Jimbo:]

The "Energy Policy" of the United States is a suicide pact.

May 08 09:57 AM

[waldipup:]

The U.S. reserves the author refers to is not economically feasible to produce.

Can the author address this point?

Or is that of no significance?

May 08 10:01 AM

[Chris of NH:]

Hopefully you were kidding, otherwise you are a useless holocaust denial type and of no value to humanity as such.


On May 08 04:10 PM Amish Rake Fighter wrote:

> On May 08 12:17 PM Chris Who Says Barney Frank is a Moron wrote:
>
>
> Moo...moo, I say

May 08 04:18 PM

[Teutonic Kn...:]

Mr. Shell,

I believe you might have a typo under #5: The current Secretary of Energy is Dr. Steven Chu (Prof. Chu) vice Senator Salazar, who is the current Secretary of Interior.

You are quite right - the Canadian Dollar was unjustly low at the beginning of the year trading at ~ 80 cents to the U.S. Dollar. Traditionally, it would be more comfortable trading in the 90 cents range. At the current rate of ~87 cents as of today it does look like that it is on its way.

Thank you for a substantive and credible article.

May 08 04:23 PM

[January Thaw:]

I've felt that the US has not had or understood its need for energy...so many people I know just seem to think it's their right to free energy in whatever form...no one bothers to ever get in there and really check the figures/implications etc. I'm glad to see articles like this...but wish they could be read and understood by the general public. Until that happens...until every day people understand what's at stake I can only hope that the dedicated people who keep us going...keep on truckin'

May 08 06:37 PM

[nietschele:]

Can we leave politics out? Really what has Israel to do with Canadian Oil Sands?

May 08 10:35 PM

[Old Trader:]

Maybe expilcitly not "blow up".....but Iran's present regime denies Israel's right to exist.....that's sort of splitting hairs, given Iran's ongoing pursuit of nuclear technology.


On May 08 11:01 AM Amish Rake Fighter wrote:

> Iran never said they're going to blow up Israel.
>
> That's another horse shit NeoCon/ZioNazi/PoxNews... of Times Messianic
> Christophiles talking point for WAR WAR WAR !!!
>
> Like WMDs, "they hate our freedom" and "spreading democracy" this
> is yet another ring through the nose of the American public to lead
> them around like cattle

May 08 10:55 PM

[johngonole:]

Don't know if its true but if I were Isreal and Obama said give me your weapons and give up some land and you will have peace I'd say,....."Nuts". An Isreal without nuclear weapons really would be a suicide pact. They could never hold the land these days because they simply don't have the numbers or support from world leaders.

My sister and I got a copy of the New York Times on the day my father was born for his birthday. This is pre-WWII mind you and the british controled the region. Two or three articles were written that day on the problems in that region. The main article discusses a two state solution........So this two state solution has been on the table longer than my father's life time and probably almost everyone here. It isn't going to happen. If it ever did it might last all of a year before they started fighting again.

May 09 03:24 AM

[erniem:]

The Athabasca river in Canada is the primary water source for oilsands production, and current levels of oil production already have taxed it. There is NO WAY it can produce enough water for serious oilsands production. And the author has failed to mention entirely the problem of what to do with the "tailings" or polluted water left over. The current practice is to just put it in large ( the largest in the world) man made "ponds". The Syncrude "Pond" is contained by a 14 mile long earthen dam, the largest earthen dam in the world.

May 10 11:45 AM

[john s. gordon:]

your pond sounds an awful lot like the TVA coal-ash pond that overflowed awhile ago.
> jack

May 10 08:56 PM